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Direct Materials Budget - its close proximity to suppliers...

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Direct Materials Budget The direct materials budget shows both the quantity and cost of direct materials to be purchased . The quantities of direct materials are derived from the following formula. Illustration 20-6 Formula for direct materials quantities The company then computes the budgeted cost of direct materials to be purchased by multiplying the required units of direct materials by the anticipated cost per unit. The desired ending inventory is again a key component in the budgeting process. For example, inadequate inventories could result in temporary shutdowns of production. Because of
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Unformatted text preview: its close proximity to suppliers, Hayes Company maintains an ending inventory of raw materials equal to 10% of the next quarter's production requirements. The manufacture of each Kitchen-Mate requires 2 pounds of raw materials, and the expected cost per pound is $4. Illustration 20-7 shows the direct materials budget. Assume that the desired ending direct materials amount is 1,020 pounds for the fourth quarter of 2010. Illustration 20-7 Direct materials budget...
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